MegaBanner-Right

MegaBanner-Left

LeaderBoad-Right

LeaderBoard-Left

Home » Industry News » Manufacturing » Mining, manufacturing & construction most at risk of restructuring in 2015

Mining, manufacturing & construction most at risk of restructuring in 2015

South Africa’s sluggish economy is likely to result in an increase in the number of businesses that require restructuring in order to survive with companies in the resources, manufacturing and construction sectors most at risk in the year ahead, according to Deloitte.

Deloitte’s 2015 South African Restructuring Outlook Survey canvassed the country’s 30 most prominent restructuring professionals from a selected mix of Commercial Banks (27%), Development Finance Institutions (21%), Lawyers (12%), Business Rescue Practitioners (21%) and other key professionals (19%). The survey’s findings show that 73% of restructuring experts in South Africa expect to see an increase in the number of distressed companies seeking business rescue over the next 12 months.

“Both the number and size of businesses likely to go into restructuring in 2015 is expected to increase compared to last year,” said Wanya du Preez, Senior Manager for Restructuring Service at Deloitte. “The main driver behind this expectation is the weak domestic economy, which has been negatively affected by subdued commodity prices, continued labour unrest and unreliable electricity supplies. Industries that are most likely to be affected are the resources, manufacturing and construction sectors.”

South African Finance Minister Nhlanhla Nene was forced to lower his 2015 economic growth forecast to 2% in February this year, down from an initial estimate of 2.5% released by the National Treasury in October 2014. That came after GDP expanded by just 1.5% in 2014, the slowest pace since 2009 when South Africa suffered a recession in the wake of the global financial crisis.

The IMF also reduced its 2015 economic growth forecast for South Africa to 2.1% in January, from an October estimate of 2.3%. Economists have stated that the main reasons for South Africa’s sub-par economic growth outlook include nationwide electricity shortages, ongoing labour unrest and weak business confidence.  These reasons, in addition to the fluctuating and unpredictable commodity prices, was echoed in the Deloitte Survey.

While Deloitte’s Restructuring Survey shows that 55% of experts in the industry expect South Africa’s economy to remain stagnant in 2015, this still represents an improvement from the 72% of respondents who made the same assessment last year. Nevertheless, what is worrying is that 21% of respondents expect a recession in 2015, up from 19% last year.

Du Preez says that South Africa still has a long way to go to develop its professional restructuring industry to the same levels as international markets such as the U.S. where it plays a key role in enabling struggling businesses to weather economic storms. A critical success factor to determining whether or not a restructuring is successful is whether struggling businesses are able to access distressed funding, she says.

“Distressed funding for businesses undergoing restructuring is not easily forthcoming and the million dollar question lies with the identity of the provider of the funding – the government, alternative distressed lenders, banks or development finance institutions to name a few,” says Du Preez. “Banks are seen as the go-to party for distressed funding, but are reluctant to increase their exposure to distressed businesses even further, whilst alternative distressed lenders are the norm abroad, the industry is still very nascent in South Africa.”

No less than 79% of respondents believe that the levels of distressed funding that will be provided to struggling businesses over the next 12 months will be insignificant. That is an increase from 62% of restructuring experts who made the same assessment in 2014.

Du Preez says South Africa needs to improve its restructuring legislation towards further sophistication, with the U.S.A. being a prime example of a country with very advanced laws governing this industry. This, together with increased regulation and oversight in the business rescue industry specifically, will boost the probability of ensuring that business rescue efforts are successful, she added.

To enquire about Cape Business News' digital marketing options please contact sales@cbn.co.za

Related articles

ifm AL2284 & AL2384: Temperature to IO-Link module

Integrate temperature probes (Pt100 or Pt1000 or Type J or Type K thermocouples) directly into IO-Link. Digitisation of Pt100 or Pt1000 or Type J or...

N7 Refinery Interchange officially opened

Friday, 26 April, Premier Alan Winde and Western Cape Minister of Infrastructure Tertuis Simmers ceremonially opened the newly upgraded N7 Refinery Interchange. Making the Western...

MUST READ

Renewable energy component market will be worth R468-billion by 2030 –...

By Larry Claasen SOUTH Africa’s energy crisis, along with the global move to environmental sustainability has the potential to be a big economic drive, says...

RECOMMENDED

Cape Business News
Follow us on Social Media